The FAZ reports that politicians get angry about the German banks not fulfilling their roles by channeling credit to German firms. The bad banks law and the flood of liquidity recently provided by the ECB have led politicians to believe that recovery is around the corner. They are mistaken.

We are in a Great Depression. As I have remarked on this blog more than once, saving-investment imbalances are at the center of this problem. Still, policy makers do not understand the problems of the banks. They are over-indebted and to protect themselves from a bank run and non-performing loans in the near future, they have to stay liquid. This means they will invest any extra credit only into liquid assets. Long-term loans to companies are not liquid.

It’s not that this never happened before. Here is another excerpt from Irving Fisher’s 1935 classic (well, it should be!) 100% Money (p. 148-9):

The present system of ostensibly short term loans is especially disappointing in a depression. Recovery from a depression requires long capital loans, not short commercial loans. But the banks require the opposite. Hence the allegation of business that it can’t get loans, and, of banks, that they can’t make them.

Well, that sure does sound familiar. Funny, isn’t it?